Market regulator Securities and Exchange Board of India (SEBI) has proposed a comprehensive overhaul of regulations governing exchange-traded derivatives, aiming to reduce compliance burden on stock exchanges and simplify market processes. According to reports from Essential Business Intelligence, the regulator released a consultation paper on Thursday outlining these sweeping changes to the derivatives rulebook. The proposals represent a sweeping clean-up of regulations covering equity, currency, interest rate and commodity derivatives, involving merging, pruning and restructuring large parts of SEBI's master circulars. As per SEBI, the review seeks to simplify regulatory requirements, discontinue duplication and reduce the compliance burden on exchanges by restructuring and consolidating existing master circulars governing derivatives markets.
The proposed changes include removal of the 'Close-to-the-Money' option series in commodity options, a structure that SEBI stated adds complexity and uncertainty for traders. According to the consultation paper, the regulator noted that leading global commodity exchanges do not follow the CTM framework and rely only on in-the-money and out-of-the-money options. Additionally, SEBI has proposed cutting the mandatory frequency of Product Advisory Committee meetings for non-agricultural commodities to once a year, citing limited agenda items and difficulties in convening members. The regulator has also proposed reducing the mandatory number of Product Advisory Committee meetings for non-agricultural commodity derivatives from two meetings annually to one meeting per year, aligning them with agricultural commodity norms. Exchanges argued that non-agricultural commodity contracts generally require fewer specification changes and that attendance in such meetings has often remained weak for low-liquidity contracts.
In a significant development, SEBI has proposed major changes to mutual fund operations by allowing fund houses greater flexibility in availing intraday borrowings. At present, mutual funds use such facilities mainly to bridge temporary timing mismatches between redemption payouts and receivables during the trading day. However, SEBI is now considering permitting asset management companies (AMCs) to use intraday borrowings for purposes beyond investor redemptions, while also allowing borrowings to exceed same-day receivables in certain cases. The move follows representations made by the Association of Mutual Funds in India (AMFI) and is aimed at improving liquidity management, operational efficiency and smoother fund execution during volatile market conditions. This represents a significant expansion of the intraday borrowing framework beyond its traditional use for redemption timing mismatches.
Other significant changes include shifting daily disclosure of derivatives transactions from newspapers to exchange websites, giving exchanges greater discretion in tightening position limits, and removing outdated norms on broker certification and capital requirements. According to the consultation paper, these reforms are part of SEBI's broader push for ease of doing business for market infrastructure institutions. In another move toward digitisation, SEBI has proposed replacing newspaper disclosures of derivatives transactions with website-based disclosures by exchanges. The regulator also proposed separating regulatory provisions applicable to stock exchanges and clearing corporations into distinct master circulars, reflecting increasingly segregated operational roles after interoperability and independent clearing member registration frameworks.
SEBI further proposed granting exchanges greater operational flexibility in advancing expiry dates of commodity contracts during sudden disruptions such as strikes, erratic weather or unexpected market closures. Under the proposed framework, exchanges would be allowed to take such decisions with approval from the managing director and provide "adequate notice" instead of the existing mandatory 10-day advance intimation rule. The regulator also proposed position limit monitoring in derivatives markets, clarifying that exchanges would continue to remain responsible for monitoring position limits but may outsource the operational work to clearing corporations through formal agreements defining roles and responsibilities.
SEBI emphasized that the proposals focus on streamlining processes and eliminating duplication, not on diluting investor protection or risk controls. As reported by Essential Business Intelligence, the regulator stressed that these changes maintain the same level of risk management while improving operational efficiency. Public comments are invited until June 4 for stakeholders to provide feedback on these proposed regulatory changes. The regulator also proposed discontinuing several outdated requirements, including lower base minimum capital norms for brokers without nationwide terminals, noting that regional stock exchanges have largely ceased operations and internet-based trading has become standard. Similarly, SEBI proposed removing separate certification guidelines for derivatives dealers and brokers because these are already covered under the Sebi certification regulations for associated persons in securities markets.
